After Jindal, Louisiana reels from corporate tax giveaways

(Reuters) - Near the end of his eight years as Louisiana governor, Bobby Jindal, a tax-slashing conservative and presidential hopeful, acknowledged that the state’s business tax breaks had gone too far.

Former Louisiana Governor Bobby Jindal speaks at the Growth and Opportunity Party at the Iowa State Fairgrounds in Des Moines, Iowa in this October 31, 2015 file photo. REUTERS/Brian C. Frank/Files

“The truth is, we have a system of corporate welfare,” Jindal said during an April speech to legislators.

The comment resonates now as the state faces its worst budget crisis in three decades - largely because of the soaring cost of subsidies, as well as personal income tax cuts, championed by Jindal.

Business tax subsidies peaked in 2012, when the state exempted 88 percent of corporate income taxes, or about $1.8 billion. It has exceeded 80 percent since then, according to the Louisiana Department of Revenue.

For a graphic showing how corporate tax exemptions soared as state revenue fell, see tmsnrt.rs/1T7qbm9

Plummeting oil prices dealt the latest blow to state revenues. Deficits are projected at $940 million for the fiscal year ending June 30 and about $2 billion for next year.

“It’s gotten pretty bad, pretty rapidly,” said the state legislature’s chief economist, Greg Albrecht, who believes Louisiana is heading into a recession.

Jindal has kept a low profile since leaving office in January and could not be reached for comment. In a January speech, he highlighted efforts to cut government and stimulate the economy without raising taxes.

“You look at the projects — the employers coming in and those who are expanding — we’ve seen tremendous progress,” he said.

RISING STAR

In 2008, when Jindal became governor at 36, he was a rising GOP star, often mentioned as a potential presidential candidate. He cultivated that image, staking his political fortunes on a platform of slashing taxes, dismantling big government and attracting business.

The next year, Jindal helped push through legislation to cut personal income taxes and worked to enhance Louisiana’s already robust corporate tax breaks.

In July of 2009, he signed bills that created or expanded nine tax credits to sectors including film, port cargo and infrastructure. The credits are typically worth 20 to 40 percent of a company’s in-state spending, or in some cases spending on payroll or research.

In all, annual corporate tax exemptions rose during Jindal’s term by about $1 billion, to $1.96 billion in 2014, according to state data.

His tax-cutting hit a wall in 2013 when he failed to convince a Republican-controlled legislature to abolish personal and business income taxes.

“He really wanted to go to a national stage, run for president, and say he repealed the personal income tax,” said Robert Travis Scott, president of the Public Affairs Research Council, a nonpartisan organization.

Many of Jindal’s political successes had consequences for Louisiana’s budget. A state-commissioned study found that film tax credits, for example, cost the state an estimated $171 million in 2014.

Then Louisiana Gubernatorial candidate John Bel Edwards speaks to reporters during a Veterans Day event in Baton Rouge, Louisiana in this November 11, 2015 file photo. REUTERS/Lee Celano/Files

“The state ends up with the short end of the stick,” said Loren Scott, author of the study, which also found some economic benefits.

The plant will create 130 permanent jobs with average salaries of $80,000, records show. The California-based company also got rebates on some payroll costs and a capital investment tax credit.

Louisiana’s subsidies are getting more scrutiny in the budget crisis. Democratic Governor John Bel Edwards, who took office in January, has proposed cutting incentives but faces resistance from Republican legislators and business groups.

“The previous administration,” Edwards said, “blew a hole in our state budget by writing checks for tax credits, rebates, or refunds to corporations with no consideration of whether Louisiana receives a good return on our investment.”

Jindal advisor Curt Anderson said the subsidies resulted in new jobs and higher wages. “His decision to shrink the government and grow the private sector economy was purposeful.”

Business groups continue to support the incentives, saying they are invaluable to the state economy.

“In terms of economic development, Jindal was an outstanding governor,” said Michael Hecht, president of Greater New Orleans Inc. “Corporations are being scapegoated.”

Falling oil prices and personal income tax cuts also played major roles in the crisis, according to state data. Oil-related revenues are projected to drop by nearly $400 million this fiscal year, the data shows. Personal income tax breaks pushed by Jindal and predecessor, Democrat Kathleen Blanco, reduced revenues by about $800 million annually, said Albrecht, the state economist.

Most Louisiana business subsidy programs preceded the Jindal administration, but their use and cost shot up during his tenure, said Jan Moller, director of the nonpartisan Louisiana Budget Project. The governor, he said, directed state economic development officials to “aggressively pursue companies and give them as many incentives as possible.”

CRISIS MANAGEMENT

“Despite the fact that the state was hemorrhaging money, he just wanted to keep his tax virginity” for his presidential campaign, said Edward Chervenak, a political science professor at the University of New Orleans, echoing a theme common among Democrats and Republicans alike in the state.

Having signed a pledge not to raise taxes, Jindal turned to one-time fixes, such as offering tax amnesty to delinquent taxpayers and raiding state trust funds. That included drawing down $520 million from the Medicaid Trust Fund for the Elderly and $540 million from a reserve fund for state employee healthcare, according to Republican state Treasurer John Kennedy.

Jindal failed last year to sell the state’s tobacco settlement, worth $1.2 billion over time, for an upfront lump sum of $750 million - a move Kennedy compared to “a junkie selling his TV or smartphone to buy another fix.”

Lawmakers now face tough choices. Healthcare and education budgets - particularly colleges - already have been slashed and could see more cuts. And legislators are considering raising sales taxes by up to 2 cents.

State Representative Julie Stokes, a Republican from the New Orleans suburb of Kenner, said her GOP colleagues have been reluctant to raise taxes, and she understands.

“Look, I don’t want to talk about it - I’m a conservative Republican from a conservative Republican district,” she said. “But I just feel like we’ve got to lose the talking points and have an honest dialogue.”